SPANISH BANKING GROUPS HAVE REDUCED NON-PERFORMING LOANS TO 6% AND INCREASED COVERAGE TO 64%.
DESPITE LOWER PROFITS, THEY HAVE MAINTAINED THEIR SOLVENCY LEVELS AT 12.1% CET1.
OPERATING EXPENSES ARE CONTAINED IN LINE WITH PREVIOUS MONTHS, AND PROVISIONING NEEDS FOR IMPAIRMENTS HAVE DECLINED.
CONSOLIDATED RESULTS: The attributable profit of Spanish banking groups, as of 31 March 2016, amounted to €2,958 million, €693 million (19%) lower than that recorded in the first quarter of the previous year.
The containment of operating expenses and the lower need for provisions for financial instruments were not sufficient to offset the reduction in gross income and the lower results recorded after operating profit.
GROSS INCOME: With average balance sheet growth of 5.8% year-on-year, the more moderate increase in the recurring components of gross income has led return on average assets to fall by 4 basis points in net interest income, to 2.12% of average total assets (ATA) on an annualised basis, and by the same number of basis points in net fee and commission income, which represents 0.65% of ATA. Lower results from foreign exchange differences and financial transactions—which recorded unusually high figures in the same quarter of 2015—subtract a further 20 basis points from the return on assets of gross income, leaving it at €20,035 million, 3.4% lower than a year earlier.
EXPENSES AND PROVISIONS: Operating expenses, which are growing at an annual rate of 2.5%, below that of the balance sheet, contribute an improvement of 5 basis points to profitability, bringing it to 1.55% of ATA. Meanwhile, the lower need for charges and provisions, which together represent 0.71% of ATA (0.89% in March 2015), makes it possible to keep operating profit at €5,315 million, almost the same as in 2015 in absolute terms and 6 basis points lower relative to average total assets.
ATTRIBUTABLE PROFIT: The weaker results from asset sales, which have materialised as losses on non-current assets, mean that attributable profit in the first three months of the year amounted to €2,958 million, 19% lower than in March 2015. Return on assets also fell from 0.59% the previous year to 0.45% in this first quarter of 2016.
BALANCE SHEET: The aggregate consolidated balance sheets of Spanish banking groups stood at €2.6 trillion at the end of the first quarter, 2.6% higher than a year earlier. The most significant increases recorded over the last twelve months are in the items representative of core activity: loans and deposits.
LOANS AND DEPOSITS: Customer deposits increased by more than €91,000 million, at an annual rate of 7.1%, while loans rose by more than €59,000 million (4.1%), bringing the loans-to-deposits ratio to 110%, three percentage points lower than the previous year. This has reduced core funding needs (commercial gap) by 18%, to €140,000 million, a figure that represents barely 5% of total assets.
NON-PERFORMING LOANS: Customer lending shows a non-performing loan ratio of 6.1%, 80 basis points below the 6.9% recorded in March 2015, with a coverage level of 64%, compared with 60% in the previous year.
EQUITY: Book equity, despite the increase in own funds and minority interests of €12,000 million between the two, fell by 0.8% year-on-year due to the decline in unrealised gains on available-for-sale financial assets recognised in equity accounts, and the increase in negative foreign exchange differences. The solvency ratio, measured in terms of Common Equity Tier 1 (CET1), remains at 12.1%, a level similar to that of March 2015.
INDIVIDUAL FINANCIAL STATEMENTS
RESULT: The profit for the year generated by Spanish banks in the first quarter of 2016 stood at €2,004 million, 11% lower than that achieved in March 2015, translating into a decrease of 6 basis points in return on average total assets.
MARGINS: Despite the unusual interest-rate environment, net interest income has been maintained at levels similar to those of the first quarter of last year, with a decline of just 3 basis points on ATA, reaching €3,254 million as of March 2016. The level of net fees and commissions earned has also been maintained, totalling €1,428 million and increasing their contribution to the income statement by 1 basis point on average total assets. Gross income has been characterised, in addition to net interest income and net fees and commissions remaining stable in amount, by two other factors: a significant decline in results from financial transactions and an increase in dividends received during the period. Results from financial transactions fell by almost 35 basis points to €700 million, explained by the unusually high result obtained in the first quarter of 2015. This decrease is partially offset by the increase in income from equity instruments, i.e., dividends received, which reached €2,161 million and rose by 14 basis points on average total assets.
OPERATING PROFIT: Operating profit of Spanish banks remains at levels similar to those of the first quarter of 2015, both in absolute terms (€2,546 million) and in return on average total assets (0.70%). This result is achieved thanks to the containment of operating expenses (€3,670 million), 3 basis points lower than in the same period of 2015, and the stabilisation of provisions, reduced by almost 35% (€1,317 million), thereby improving return on ATA by 18 basis points (0.36%). After operating profit, the lower results from the sale of non-current assets stand out; overall, they subtract 15 basis points on ATA, leaving profit for the year at €2,004 million, with an ROA of 0.55%.
LOANS AND DEPOSITS: The balance sheet of Spanish banking groups amounted to €1.4 trillion at the end of the first quarter of 2016, 4% lower than in the first quarter of 2015, but 0.5% higher than at the close of that year. Regarding core banking activity—granting loans and taking deposits—loans have fallen by 5.8% over the last twelve months (to €714 billion), while deposits have also declined, though to a lesser extent (4.6%). These figures place the Loan-to-Deposit (LtD) ratio, as of March 2016, at 104.6% (106% in March 2015). It is worth highlighting the improvement in the non-performing loan ratio, which stands at 10.54% on that date (with 57% coverage), well below the 12.80% of the first quarter of 2015, when coverage reached 58.7%.
OWN FUNDS AND EQUITY: Special mention should be made of the positive trend, as on previous occasions, in the own funds of Spanish institutions, which amount to €144,233 million and already represent 10% of total assets, up 1.5% compared with March 2015. This increase is offset by lower unrealised gains on available-for-sale financial assets, which have declined to €619 million. Both effects leave institutions’ equity at €144 billion as of 31 March 2016, virtually the same as the €145 billion recorded at the end of the first quarter of 2015.
